IS ROARK CAPITAL BUILDING A FRANCHISE BUBBLE? - Jordan Ash JUNE 2021
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IS ROARK CAPITAL BUILDING A
FRANCHISE BUBBLE?
Jordan Ash
jordan.ash@PEstakeholder.org
JUNE 2021
Is Roark Capital building a franchise bubble? 1
Key Points
Is Roark Capital building a franchise bubble?
Roark Capital has collected billions from investors in recent years. Will those investors get it back?
Private equity firm Roark Capital recently launched fundraising for a new private equity fund, Roark Capital Partners VI,
seeking $5 billion.
Atlanta-based Roark specializes in buying and running franchise businesses, especially within the food and restaurant industry.
Roark Capital’s last fund, Roark Capital Partners V, closed at $5 billion in 2018 along with a $1.5 billion sidecar fund.
• Roark raised at least $10.5 billion from investors between 2012 and 2018. Yet as of September 2020, Roark had
only returned around $1 billion of that to investors.1
• As of September 2020, the Roark Capital Partners IV fund had generated an annual return (IRR) of just 0.09%.2
• One of the largest acquisitions of the Capital Partners IV fund was the sandwich chain Jimmy John’s for close to
$3 billion in 2016. Jimmy John’s sales per store was $877,000 at the time3 but has steadily decreased and was
just $753,000 in 2019.4 A number of the other brands that Roark invested in via Capital Partners IV had sluggish
growth in expansion.
• Some of the largest private equity investors have either exited investments in Roark Capital funds or held off on
new investments.
2 Private Equity Stakeholder Project
Roark takes in billions, but will they return it?
Roark has grown quickly. The company currently manages
$25 billion in assets.5 Just six years ago, in 2015, the
company reported that it had raised $6 billion since its
founding in 2001.6
Roark Capital recently made its largest purchase ever
with its $11.3 billion acquisition of Dunkin Brands. Roark’s
purchase of Dunkin Brands at 23x EBITDA was one of the
restaurant industry’s most expensive transactions.7
Roark raised at least $10.5 billion from investors between
2012 and 2018. Yet as of September 2020, Roark had only
returned around $1 billion of that to investors.8
SIZE
FUND YEAR ($ MILLIONS) DPI DISTRIBUTIONS
Roark Capital Partners V 2018 $5,000 0.00 $0
Roark Capital Partners V Sidecar 2018 $1,500 0.00 $0
Roark Capital Partners IV 2016 $2,500 0.06 $150
Roark Capital Partners III 2012 $1,560 0.55 $858
Is Roark Capital building a franchise bubble? 3
Roark Capital Partners IV performance lags peers
ROARK CAPITAL PARTNERS IV ANNUAL RETURN (IRR)
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
9/1/17 11/1/17 1/1/18 3/1/18 5/1/18 7/1/18 9/1/18 11/1/18 1/1/19 3/1/19 5/1/19 7/1/19 9/1/19 11/1/19 1/1/20 3/1/20 5/1/20 7/1/20 9/1/20
-2.00%
-4.00%
The performance of Roark Capital Partners IV, which closed What did Capital Partners IV invest in?
at $2.5 billion in 2016, might give investors pause.
According to data provider Pitchbook, Roark Capital
As of September 2020, Roark Capital Partners IV had generated Partners IV invested in several companies, including:
an annual return (IRR) of just 0.09% and 1.0x multiple.9
• QualaWash Holdings (Jan ’16)
Underperformance predated COVID-19 pandemic • Orangetheory Fitness (Feb ‘16)
• Drybar (Jun ’16)
While the fund showed promise early on, generating an • Miller’s Ale House (Jul ‘16)
annual return (IRR) of 7.87% as of mid-2018, that number • Great Expressions Dental (Sep ‘16)
quickly plummeted and hovered at around 2% for all of • Jimmy John’s (Sep 16)
2019 and into 2020.10 • Jim n’ Nick’s Bar-B-Q (July ’17)
• Culver’s (Oct ‘17)
The pandemic made a bad situation worse, giving the fund • IMO Car Wash Group (Oct 17)
an annual return of just 0.09%.11 • Jamba Juice (Sept 18)
4 Private Equity Stakeholder Project
Declining Sales and
shrinking footprint at
Jimmy John’s
Roark made one of its largest acquisitions in September
2016 when it acquired sandwich chain Jimmy John’s for
close to $3 billion.12 Jimmy John’s sales per store had been
$877,000 in 2015.13 It has steadily decreased and was just
$753,000 in 2019.14
This was not an industry-wide problem. According to
Nation’s Restaurant News, 161 other food service chains
had better percentage growth in sales per store than Jimmy
John’s in 201915 and 171 other chains did better than Jimmy
John’s in 2018.16 JIMMY JOHN’S SALES PER STORE
(IN THOUSANDS)
Jimmy John’s also experienced a dramatic decrease in the
number of new stores opened. $877 $850 $792 $770 $753
2015 2016 2017 2018 2019
In 2015, the last full year before its acquisition by Roark,
Jimmy John’s opened almost 300 new stores, a 14%
increase in the total number of locations, which was
the fifth highest rate of growth among all restaurant
chains in the U.S.17 Since then, there has been a steady
JIMMY JOHN’S # OF NEW STORES
annual decrease in the number of new Jimmy John’s
stores opened and in the company ranking for rate of 296 242 108 48 -16
growth. In 2019, there were 16 fewer Jimmy John’s 2015 2016 2017 2018 2019
stores than in 2018, which ranked the company’s 118th
out of all franchises in the US for rate of growth.18
PERCENTAGE RATE RANKING IN U.S. BASED
YEAR # OF NEW STORES OF GROWTH ON RATE OF GROWTH
2015 296 14.04% 5
2016 242 10.06% 10
2017 108 4.08% 54
2018 48 1.74% 77
2019 -16 -0.57% 118
Source: Nation’s Restaurant News
Is Roark Capital building a franchise bubble? 5
Slow Growth
A number of the brands that Roark invested in via Capital
Partners IV had sluggish growth in expansion.
Orangetheory Fitness
Roark acquired the company in February 2016, and
since then, the company has not grown as fast as its
management expected it would.
• The company said that it would open 400 new
studios in 2017.19 However, the company opened
fewer than 300 studios that year – less than three-
quarters of what it had projected.20
• Orangetheory Fitness scaled back its goal for 2018 an undisclosed amount of development capital in the
and said it would open 300 new studios that year.21 company in July 2016 through Capital Partners IV.25
However, it opened fewer than 200.22
In July 2016, at the time of Roark Capital Partners IV’s
IMO Car Wash Group investment, Miller’s Ale House had 75 restaurants,26 and its
website boasted that the company is “continuing to grow,
Roark acquired IMO Car Wash Group in October 2017. At opening 8-10 new restaurants per year.”27 However, five
the time, the company had 900 locations.23 Roark merged years later, the company has only 20 more restaurants – an
the company into its Driven Brands division and nearly average of 4 new restaurants per year.28
four years later has 912 locations.24
Jim n’ Nick’s Bar-B-Q
Miller’s Ale House
When Roark acquired the Jim n’ Nick’s Bar-B-Q in July
Roark acquired Miller’s Ale House in July 2013 for 2017, it had 37 restaurants.29 It currently has a total of 38
$240 million. According to Pitchbook, Roark invested restaurants30 – just 1 more than it did four years ago.
6 Private Equity Stakeholder Project
Large investors exit Roark, hold off on reinvestment
While Roark Capital’s new fund has drawn investment from The Teacher Retirement System of Texas, another large
a number of institutional investors, some of the largest Roark investor, reported in April 2021 that it was not at
private equity investors have either exited investments in that point underwriting an investment in Roark Capital’s
Roark Capital funds or held off on new investments. new fund, Roark Capital Partners VI.
The Canada Pension Plan Investment Board (CPPIB), one of Canada and Texas are not alone. Other large Roark
the largest investors in private equity globally, had invested investors that have opted out of successor funds include
a total of $250 million in Roark Capital Partners IV and V.31 the Washington State Board of Investment, the New York
State Common Retirement Fund, the New Jersey Division
Yet as of September 2020, CPPIB no longer reported of Investment, the Fire and Police Pension Association
investments in Roark, suggesting it had sold its stakes in of Colorado, and the Santa Barbara County Employees
the funds.32 Retirement System,
Is Roark Capital building a franchise bubble? 7References
1. https://my.pitchbook.com/profile/10143-55/investor/profile#fund-performance, accessed May 12, 2021.
2. “Private Equity Portfolio Overview By Strategy,” Washington State Investment Board, September 30, 2020. (https://www.sib.
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empire/?sh=4f907365540c)
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clubindustry.com/commercial-clubs/orangetheory-fitness-projects-1-000-locations-more-international-growth-2017)
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footprint-in-2017-300589549.html)
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footprint-in-2017-300589549.html)
22. The company had 857 locations in January 2018 (https://www.prnewswire.co.uk/news-releases/orangetheory-expands-into-
the-north-and-midlands-of-england-668292843.html) and 1,000 in December 2018. (https://www.prnewswire.com/news-
8 Private Equity Stakeholder Projectreleases/boca-raton-resort--club-a-waldorf-astoria-resort-and-orangetheory-fitness-announce-first-ever-pop-in-residency-this-
winter-300764104.html)
23. “Roark Capital Group Acquires International Car Wash Group,” Media Release, October 4, 2017. (https://www.prnewswire.com/
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29. “Roark Capital Group acquires Jim ‘N Nick’s Bar-B-Q,” Nation’s Restaurant News, July 11, 2017. (https://www.nrn.com/mergers-
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